Investing in commercial property through a self-managed super fund (SMSF) can be very appealing, especially for business owners who can buy their business premises and rent them back to themselves.
This setup offers some attractive tax benefits and can make financial management simpler. There’s been a noticeable increase in people putting their money into SMSFs, with commercial property prices also on the rise.
Planning Your Investment Strategy
If you’re managing your own SMSF, you’re responsible for deciding how to invest the funds. It’s important to think carefully about mixing different types of investments to balance risk and maintain enough cash flow. While you can choose various investment paths, all decisions must be agreed upon by all trustees and comply with SMSF regulations.
When planning, set clear goals for what you want to achieve and be realistic about what’s possible. Sometimes you might need to adjust your plans to stay within the rules of SMSFs, like limiting how much you invest in commercial property initially.
Keeping Investments Appropriate
Any investment you make must be solely for the purpose of providing retirement benefits to the members of the SMSF. This is even more important with commercial properties, which are more leniently treated than residential properties. You must ensure all dealings are fair and avoid any conflicts of interest or special deals. For example, if you are operating a business from commercial premises owned by the SMSF, rent paid to the SMSF must be at market rate using an independent valuation that is reviewed regularly.
Handling Large Investments
Commercial properties can be expensive, often costing millions, which makes them hard to buy outright for most SMSFs. Since borrowing options have become less available and super contributions are limited, finding creative ways to invest is necessary. One option is to share ownership of a property with other SMSFs or investors, which can make these large investments more manageable.
Managing Cash Flow as You Near Retirement
The main downside to investing in commercial property is that it can be hard to turn into cash quickly, which can be a problem as you get closer to retirement. It’s important to ensure your investments can generate enough income when you need it. This might mean selling the property or finding other ways to diversify and increase your income.
Considering Exit Strategies
It’s wise to think about how you might eventually exit these investments, such as by selling the property or increasing your range of investments to improve liquidity. Getting advice from financial experts who understand the unique challenges of SMSFs can help a lot in making sure you meet your retirement goals.
In summary, while buying commercial property through an SMSF can be rewarding, it also involves careful planning, strict adherence to rules, and active financial management. Seeking professional advice is crucial to making the most of these opportunities and ensuring a stable financial future.
Important Notice:
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